Conflict hits Saharan hydrocarbons

Conflict hits Saharan hydrocarbons

Two separate but connected outbreaks of violence have recently affected oil and gas sector operations over a wide swath of the Sahara and Sahel. French-led coalition forces intervened in central and northern Mali to support the Malian army in driving out Islamist fighters, just as oil exploration in the country was about to take off. The widely reported attack on an Algerian gas plant in mid-January also raised fears about oil and gas industry infrastructure in the region. There are a number of links between the two events, not least that the end of the Libyan civil war saw arms and former pro-Gaddafi mercenaries flood home to the countries of the Sahel.


Italian oil and gas company Eni announced in January that it had pulled out of Mali. A spokesperson for the firm said: “Eni has handed back licences it had because of the very low potential of the area”, suggesting that the decision had nothing to do with the war. However, the timing of the decision indicates that instability in the area must have played a role in the pull-out. The five licences in the Taoudeni Basin had been held in partnership with Sonatrach.


On 16th January, an armed group crossed into Algeria from Mali and took hundreds of workers hostage at the Tigantourine plant, 40km from In Amenas in the Sahara Desert. While most eventually escaped, at least 69 people were killed, including 39 hostages, as Algerian forces stormed the facility. The plant, which handles 9bn cubic metres of a gas a year, is operated by BP in conjunction with partners Statoil and Sonatrach. The hostage takers claimed that they had launched the operation in retaliation at France’s operations in Mali and also demanded the release of Islamist prisoners held in Algerian jails. However, Algerian sources suggest that the attack was planned long before Paris even decided to send troops to Mali. The assault was particularly surprising given the remote location of the plant.

The chief executive of Statoil, Helge Lund, spoke passionately about the threat posed by such attacks, saying: “This act of violence is a crossroads, for the global oil and gas industry, for our organisation, our culture and the quality of our leadership.”

At least 500 Algerian troops have now been sent to protect every key oil and gas sector facility in the country. Fatih Birol, the chief economist at the International Energy Agency, commented: “The Algerian attack will make life more challenging for everyone in the region. Producing countries will have to make terms more attractive and guarantee political stability.”

The actions of Islamists in the region could also deter the development of the planned Trans-Sahara Gas Pipeline. The project is due to run from Nigeria to Algeria through Niger, enabling Nigeria to export natural gas to European customers via Algeria’s existing gas transmission network and four subsea pipelines under the Mediterranean. Little progress had been made on the venture but Abuja announced in mid-January that it had earmarked $400m of government money to help ensure construction, which is currently scheduled for completion in 2018. However, any renewed attacks in either Mali or Niger could deter private sector participation. Rightly or wrongly, the Arab Spring and its aftermath have already raised questions about North African stability. In addition, Al Qaeda in the Islamic Maghreb (AQIM) and its various offshoots continue to operate across borders in the region. At the very least, security costs will rise, while some companies may wait to see how the situation develops before sanctioning investment.

Speaking at the World Economic Forum in Davos, Andrei Kuzyayev, the head of overseas operations at Russian firm Lukoil, said: “Our industry is traditionally linked to political risks but last week’s events will lead to a major review of security spending. We had to evacuate people from Egypt three times during the revolution. Basically, the main take out here is that you cannot relax even for a second.”

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Written by African Business Magazine

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